POSSIBLE CONSOLIDATION: Nazri says the banking sector is expected to see five large and strong banks with presence in the Asian region.
KUALA LUMPUR: Economists and fund managers foresee further liberalisation in the financial sector in Malaysia next year, possibly marked by a third round of banking consolidation.
Malaysian Rating Corporation Bhd (MARC) chief economist Nor Zahidi Alias said merger and acquisition (M&A) activities in the financial sector in Malaysia would remain the focus in the next few years as financial institutions, particularly banks, try to make their presence felt in the region.
Affin Investment Bank Bhd’s vice president and head of retail and equity research Dr Nazri Khan expected a third round of consolidation in the banking sector very soon as banking players aspire to be regional players in Asia.
Nazri said the sector was expected to see five large and strong banks with presence in the Asian region.
“All the banks are desperate to push themselves for regional presence. CIMB, for example, wants to be in the top three in Asia,” he said. The latest merger and acquisition involving RHB Capital and OSK Investment Bank is progressing smoothly.
“It’s already a done deal,” Nazri told Bernama yesterday. According to a recent report, the merger between RHB and OSK was expected to be finalised by March next year. They aimed to submit the details of the merger to the central bank this month.
Nazri also foresaw RHB Capital, the fifth largest bank, reviving merger talks with Malayan Banking Bhd (Maybank) and CIMB if the price was right.
RHB was at the centre of takeover moves earlier this year between Maybank and CIMB, the country’s two largest lenders before talks collapsed in June over valuations.
Abu Dhabi Commercial Bank, which owned a 25-per cent stake in RHB, then sold its stake to Aabar Investments PJSC.
The Employees Provident Fund (EPF) holds a 45-per cent stake in RHB. The RHB merger with OSK was expected to turn the combined entity into Malaysia’s largest broker, making it more attractive to potential investors.
Nazri said another factor that would facilitate the consolidation of the banking sector was the substantial stake held by government-linked investment companies (GLICs) such as EPF in several banks.
“With GLICs holding equity interests in banks, it makes it a lot easier for the consolidation. EPF, for example, is holding substantial stake in some banks and is expected to reduce its holding,” Nazri said. According to him, the consolidation of the banking sector would increase efficiency among the banks as the market was currently saturated and competing for loans and customers.
“Margin for the local banking sector is only three per cent which is lower than that of Singapore and Indonesia. The merger is expected to boost the margin of the banking sector and improve the level of services of the banks. Customers will get a lot of benefits from the consolidation,” Nazri said.
Nazri said the consolidation of the financial sector would also push the value of smaller players like EON Bank.
Hong Leong Bank’s acquisition of EON Capital creates a systemically stronger banking group with an asset size of more than RM140 billion to achieve the vision and objectives under Bank Negara Malaysia’s Financial Sector Master Plan. As a result, customers would be able to have greater access to an even more comprehensive suite of products and services and the larger bank is able to reach its community better with an expanded distribution network of more than 300 branches and 1200 self-service terminals.
However, Nazri saw several downside factors to the consolidation, particularly where there would be large banks having high concentration of loans in the banking system.
Nevertheless, he added that Bank Negara was monitoring the situation closely. Nazri also said the consolidation would need the support of talents as many tended to leave following mergers and acquisitions of banks. — Bernama